Capitalist greed for the win once again

There’s a rather larger story behind this little tale:

But after a once-in-a-generation shake-up of the supermarket rankings saw Morrisons ejected from the “Big Four” club, executives at CD&R may be wishing they’d swallowed their pride and walked away.

For two decades, Britain’s supermarket industry has been dominated by the same quartet: Tesco; Sainsbury’s; Asda; and Bradford-based Morrisons. However, in a stunning changing of the guard that will rock the sector, Aldi has toppled Morrisons to take fourth spot, according to the last figures from data provider Kantar.

Go back just a little more than a couple of decades and there were interminable inquiries into the supermarket oligopoly. Highly paid consultants placing little triangles over maps to see where local monopolies existed. Where one or t’other of the Big Four owned not just the shops but all the likely places where a shop could be put.

There was good reason to at least think about the problem too. For margins for supermarkets were some of the highest in the world. We seem to recall 6% being bandied about as a number.

Today those same Big Four are lucky to be making 2 or 3%. Share prices have - relative to their earlier real values - declined sharply. Why?

Because some foreigners saw those profit margins and saw that they were good. Aldi and Lidl invaded and competed. The effect has been to lower the returns to those - possibly - oligopolistic capitalists who used to own the system. The beneficiaries have been the consumers.

We don’t know of a specific study on the effects of Aldi’s irruption but by analogy. The “Amazon Effect” has been studied and it applies to the online irruption rather than just to that one company. But it’s said that it has led to a 0.1% to 0.2% shaving off the inflation rate each year for a couple of decades now in the US. That’s 2 to 4% lower prices now, against what they would be without that irruption.

Note that’s of all prices across the economy - the impact upon those things actually supplied or delivered by online sellers is higher.

Now, we’d not say that Aldi and Lidl have had exactly the same effects as online but just for the want of some other number to use, imagine that it has been. That’s somewhere between, in the £2.2 trillion economy here, a £44 and £88 billion saving a year to British households.

The cost has been to the capitalists of the earlier generation of groceries suppliers. The benefit has been partly to the new capitalists and hugely greater to consumers. For no one at all is thinking that Aldi and Lidl shareholders have been enriched to the tune of £44 billion by their British adventures alone. That even before we get to the point that the benefit to consumers is an annual £44 billion saving, while any valuation of A & L is a capitalised one, a once off sum instead of an annual one.

What was the solution to the earlier supposed supermarket oligopoly and their high margins? Competition. Competition driven by capitalist greed to appropriate some of those profits to the incomers.

So, once again, capitalist greed in markets with free entry for the win then. Funny how reality has this neoliberal bias, isn’t it?